Royal Bank of Canada (TSE:RY) Fails To Exceed Expectations

The headline sounds odd, but Canadian banking in general has been generating profits, and when the Royal Bank of Canada (TSE:RY) “only” met, rather than exceeded expectations, it was considered a negative for the company.

Royal Bank of Canada is the largest in the nation measured by assets, and its smaller rivals have been returning great results for the quarter, so when they announced a 10 percent gain in profits for the quarter ending October 31, it was disappointing after their rivals had exceeded their profit expectations for the same quarter.

Profits for the quarter rose to C$1.24 billion ($1.17 billion), which is 82 cents a share. That’s up from C$1.12 billion, or 81 cents, from last year during the same quarter.

After excluding one-time items, the bank said earnings came in at C$1.06 a share.

“Expectations have grown so high, particularly coming into the quarter, that just meeting estimates is almost a bit of a negative,” said Craig Fehr, an analyst with Edward Jones & Co. “While things seem to be improving, it’s not all roses from here.”

Recent quarterly reports from the Bank of Montreal, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce all exceeded expectations, setting Royal Bank of Canada up to do the same, creating the perceived disappointing results.

Profits for Royal Bank were primarily driven by consumer lending and wealth management from the Canadian market. With equities enjoying a rebound, fees generated from trades and financial advisement helped the company enjoy an increase in revenue of 47 percent to C$7.46 billion. For the consumer lending side, profits increased 6.1 percent to C$717 million, driven by an surge in deposits, home mortgages and personal loans.

On the wealth management side, it grew by 39 percent to C$161 million year-over-year, and insurance enjoyed solid growth of 76 percent to C$104 million.

For their investment banking division, they are still struggling, as earnings dropped 3.9 percent to C$561 million from 2008 in the same quarter. Revenue from trading stood at C$1.28 billion, in contrast to losses of C$58 million last year.

Losses from international consumer banking continue to drag on the bank. While they did decrease to C$125 million from C$206 million a year ago, it is still a long way until they get that back on track.

The Royal Bank also said it has set aside C$883 million for bad loans, a big increase of 43 percent over last year.